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HMRC internal manual

Trusts, Settlements and Estates Manual

Trust management expenses: accumulation/discretionary trusts: grossing up and order of set-off example

An accumulation/discretionary trust has income as follows:

Dividends £900 net
Bank interest £8,000 net (£2,000 tax deducted at source)
It has spent £1,200 on allowable TMEs.

TMEs are set first against dividend income, and any excess against the savings income.

Dividends gross £1,000 bank interest gross £10,000
less TMEs grossed      
up at dividend rate      
(900 × 100) ÷ 90 = £1,000    
excess TMEs (300) excess TMEs grossed up at basic rate (300 × 100) ÷ 80 = £375

There is nothing chargeable at the dividend trust rate, as this income is covered by the grossed-up TMEs. The bank interest £10,000 is taxable:

£375 at basic rate due to TMEs £75
£1,000 at basic rate due to standard rate band £200
£8,625 at trust rate £4,312.50
  Total £4,587.50

As this income has already suffered tax at the basic rate (20%) the further tax to pay is £2,587.50.